IMPROVED INNOVATION THROUGH ENTREPRENEURSHIP (SME report.

com)

Despite their potential to improve economic growth, many medium sized microenterprises are the self-employed type with a low graduation rate into higher size categories and their innovative activities are limited. This is largely due to the harsher environment they operate in characterized by limited access to business modeling information and finance, unreliable enforcement of intellectual property rights and contracts, excessive business regulatory and start up requirements, and inadequate infrastructure services all imposing disproportionately high transaction costs on MSEs to do business generally. Innovation is essential for MSEs to become and remain competitive, move to higher return activities, grow and graduate to productive enterprises, thus creating new employment opportunities. Improving competitiveness is even more crucial in the context of liberalization and increasing integration into the world market. Lack of adaptation and upgrading spells defeat, while firms that keep up or even initiate their own original improvements can be expected to perform well.

Broadly defined innovative activities include introducing new products/services, new design, and improved quality of products/services, installed new equipment, changed sales methods, and improved working conditions. An innovation in a small enterprise in the developing countries context is largely an adoption of a product, process, or method that have already been adopted elsewhere but new to the firm and not necessarily new to the world, region, country, or industry.

In a research paper entitled Innovation and Microenterprises Growth in Ethiopia; Muu Gebreeyesus argues that Small business entrepreneurs are hardly homogeneous in objective and capability. Many are self-employed while others have high vigour to innovate and grow. They differ in terms of socioeconomic background and access to resources such as financial capital. The type of activities they are in is also widespread.

The question then is what types of entrepreneurs/firms are more likely to engage in innovative activity? Do innovators grow faster and create more jobs than non-innovators as it is claimed? Understanding the attributes of innovators and their impact on employment is crucial in order to answer the

question.

Schumpeter argued that innovation is seen as a breakthrough or radical change characterized by marketing and technological discontinuity and primarily produced by large firms and concentrated markets. However, innovation is incremental- rarely a dramatic breakthrough, rather small improvements in a new process or product. The realization of economic benefits from radical innovations in most cases requires a series of incremental improvements. Thus, the bulk of economic benefits come from incremental innovations and improvements.

There are perhaps three broad determinants that determine innovativeness and innovation activities in small firms: entrepreneurial attributes, firm level resources, and the environment in which the firm operates.

Entrepreneurial character: small businesses decision making is concentrated in the hands of the entrepreneur manager. Thus, the smaller the enterprise, the nearer its innovative behaviour is to that of an individuals (entrepreneurmanager) behaviour. There are three characteristics of innovative entrepreneurs; socioeconomic status, personality, and communication behaviour of which education, social status, age, attitude toward risk and science, and density of social network in which the individual participates play a role in. it remains a controversy if indeed it is true that firms led by in average younger owners, are proactive, risk taking, and more innovative.

Firm level factors: Innovation activity occurs at firm level and the firm is a central actor in processes of technological change. The debate mainly surrounds whether small or large firms are more innovative. Some argue innovations are primarily produced by large firms and concentrated markets, while others claim that small firms are more likely to innovate. The advantage of large firms on innovation is their deeper level of specialization, science-based knowledge, economy of scale, larger and cheaper financial resources, spread of risks. The strength of small firms on the other hand, lies on their flexibility, greater motivation, tacit knowledge in unique skills, more informal communication along shorter lines, less bureaucracy, greater proximity to market and to own production.

Theoretically, new technologies and processes are associated with better utilization of resources, higher quality of routine tasks and higher productivity. Companies that use innovative technologies and processes can often offer qualitatively superior and/or cheaper products, thereby enjoying higher growth potential. Those firms successfully master the timing and placement of innovation development and innovation implementation in their respective industries will be set to lead in profits market share and industry dominance. In the context of new firms, the growth and survival prospects of firms will depend on their ability to learn about their environment, and to link changes in their strategy choices to the changing configuration of that environment. Innovative spirit could be associated with the age of a firm in the sense that small firms have higher innovative capacity in the first stage of a life cycle. In contrast, firm age could also represent accumulated resource, market knowledge, and developed network thus older firms are more likely to be involved in innovation activities.

Innovation activities would take place more easily in clusters and networks. Effective network that comprises lateral and vertical linkages raises capacity for each node in the network by increasing exposure to ideas and opportunities. They also reduce the transaction of developing and adopting innovations. There are different measures of firm performance, such as growth in sales, profits, market share, assets, and employment.